Amazon expected to report huge jump in second-quarter profits as it nears $1 trillion milestone

  • Wall Street expects another strong earnings from Amazon, with its profits jumping nearly six-fold from the same period of last year.
  • Amazon's profit expansion is largely driven by the growth in its high-margin businesses, like cloud and advertising.
  • A strong earnings could make Amazon the world's first $1 trillion company.

Amazon is expected to show bigger profits when it reports second-quarter earnings on Thursday evening, backed by the continued growth of its higher-margin businesses, like cloud, advertising and third-party marketplace.

Wall Street estimates Amazon to post second-quarter profit of $2.50 per share, or roughly $1.2 billion, according to a Thomson Reuters consensus estimate, up from the 40 cents per share reported a year earlier.

That would be nearly a six-fold increase from the year-earlier period, and the third consecutive quarter of surpassing $1 billion in profits. Amazon’s quarterly profit topped the $1 billion threshold for the first time in the fourth quarter of 2017.

“We think strong growth of Amazon’s higher-margin businesses ... will be the key takeaway from second quarter and can continue to drive optimism on profitability,” Bank of America analyst Justin Post wrote in a note this week.

Here’s what Wall Street is expecting:

  • EPS: $2.50 vs. 40 cents last year, according to Thomson Reuters consensus estimate
  • Revenue: $53.41 billion vs. $37.96 billion last year, according to Thomson Reuters consensus estimate
  • AWS revenue: $6 billion vs. $4.1 billion last year, according to FactSet

In the second quarter, Amazon rolled out Prime member savings in all Whole Foods stores nationwide, while expanding Whole Foods delivery in more cities, including Chicago, Houston and San Antonio.

It also made its first official move into health care by acquiring online pharmacy PillPack and launched new initiatives like a service that delivers packages directly to the trunk of a customer's car.

Sales from Prime Day, which took place earlier in July, will not be included in the second-quarter results. Investors will look to third-quarter guidance to get a sense of how successful Prime Day was.

As of Wednesday’s market close, Amazon had a market cap of $890 billion, trailing just Apple, which stands at a $950 billion market cap, in its race to become the world’s first $1 trillion company. Amazon needs roughly a 12 percent bump to get to $1 trillion, which is achievable with a strong earnings beat on Thursday.

Here are the some of the most important topics that could get discussed during the earnings call:

  • Prime and Whole Foods integration: Amazon introduced most of the Prime benefits in Whole Foods during the second quarter. Investors will want more clarity on how the two are helping each other. “We believe that the new pricing strategy has been successful in driving sales growth, but ongoing tech investments coupled with lower pricing likely pressured margins,” KeyBanc Capital Markets analysts wrote in a note.
  • AWS and AMS growth: Amazon’s cloud business (Amazon Web Services) and advertising business (Amazon Marketing Services) are two of the fastest growing and most profitable units of the company. KeyBanc estimates advertising to reach $9 billion in annualized revenue this quarter, and AWS revenue to double to $42 billion by 2020.
  • Supreme Court decision: The Supreme Court’s decision to allow states to collect sales tax from remote online sellers could slow the growth of third-party sellers on Amazon’s marketplace. That could “negatively impact” Amazon’s profits because third-party sales have higher margins, writes Tom Forte at D.A. Davidson.
  • Health-care strategy: Following months of speculation, Amazon finally made its first official move into health care by acquiring the online pharmacy startup PillPack in June. The company is also building a secretive Grand Challenge team with a lot of health professionals, while expanding its Alexa voice-technology to the medical field as well, CNBC has reported. Investors could ask for more details on Amazon’s vision in health care.